Daiwa Bank Ltd. said Wednesday it will set up a joint holding company with two regional banks by April, creating the largest financial group in the Kansai region.
Osaka-based Daiwa, Kinki Osaka Bank and Nara Bank will slash some 3,000 jobs by April 2007 through their business consolidation, Daiwa said.
This figure equals around 26 percent of their combined workforces.
The major bank said it hopes to gain the stamina to refashion the group into a “super regional bank” that can weather an increasingly competitive banking era.
The group’s combined net assets will exceed 20 trillion yen.
The reorganization process will be implemented in three stages. By March, the group will set up a holding company and will spin off Daiwa Bank’s trust banking division as a joint enterprise.
The business consolidation, which Daiwa Bank officials hope will involve other regional or commercial banks, will be completed by April 2003.
Besides the job cuts, the group will shut down or merge around 100 branches, saving the group 28 billion yen a year, according to the plan.
Akiyoshi Otani, Daiwa Bank’s managing director, said that by streamlining operations and taking advantage of regional ties with Daiwa’s retail banking base in the Kansai area, profitability will soar.
Under the plan, the three banks hope to raise their net business profits by 64 percent to 200 billion yen by March 2007. They further hope to increase return-on-equity to 16 percent from 11.9 percent.
Other pressing reasons for consolidation drove the agreement, analysts said.
By adopting a holding company structure, Daiwa will be able to reduce its reserves to pay dividends in October.
It will also be able to allay market anxiety that further stock price falls will jeopardize Daiwa’s ability to pay dividends on preferred stock that was issued to the government in exchange for an injection of public funds.
Daiwa had latent losses of 19 billion yen on its securities at the end of June.
If no dividend is paid, the government could theoretically exercise its right to convert the preferred stock into ordinary shares and take a stake in Daiwa of more than 50 percent.
Daiwa Bank remains saddled with 813.8 billion yen in nonperforming loans. It reported a group net loss of 23.5 billion yen for fiscal 2000.
Standard & Poor’s Corp. on Wednesday affirmed its BB-plus long-term rating and B short-term rating for Daiwa Bank, despite the bank’s announcement earlier in the day that it will set up a holding company with two regional banks by April.
S&P’s outlook on the long-term rating remains negative, the U.S. credit-rating agency said.
The financial group that will be created by the three banks will be the largest in the Kansai region in terms of combined net assets, which will exceed 20 trillion yen.
But S&P said, “The impact of the new scheme, as a whole, will not immediately improve or impair the bank’s credit profile significantly.”
“The affirmation is also based on the fact that the reorganization scheme does not have any immediate impact on Daiwa’s asset quality or capitalization, both of which compare unfavorably with those of most Japanese major banks.”
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